Do I need to file Form 5471 for 1/8th ownership in a foreign non-profit organization?

Thx for the detailed response! I'm confused about the 10% threshold you mentioned. You said Form 5471 "generally requires at least a 10% ownership" but then said her 12.5% ownership is below the threshold? Can you clarify? Also, she doesn't have signature authority over any accounts, but does attend board meetings where they approve budgets. Does that matter?

You caught my error - you're right to question that. The 10% threshold I mentioned actually does apply here, and at 12.5% ownership, your fiancée exceeds this minimum threshold. However, that's just one part of the requirement. For Form 5471 to be required, you typically need both: 1) ownership of at least 10% (which she has), and 2) the entity must be considered a CFC, which generally means US persons own more than 50% of the entity in total. If there aren't other US owners that would push total US ownership over 50%, it likely wouldn't be classified as a CFC, and Form 5471 wouldn't be required despite her exceeding the 10% individual threshold. Regarding board meetings, simply attending and voting on budgets without signature authority over accounts wouldn't trigger FBAR filing requirements, but it may be relevant for other reporting obligations depending on her specific duties and authority.

How does this AI thing work with foreign entities? My dad has a bunch of rental properties in Canada and I help him with his taxes. Would it be able to tell which forms we need to file for foreign rental income? His accountant charges like $700 extra just for the "international forms" and I'm wondering if this could save us money.

I'm always skeptical of these AI tax tools. How does it actually know the specific Mexico-US tax treaty provisions that might apply to non-profits? Does it cite actual IRS regulations or is it just giving general advice? Has anyone actually had the IRS accept its recommendations during an audit?

The AI system works by analyzing all the IRS rules and international reporting requirements that apply to your specific situation. For foreign rental properties like your dad has in Canada, it would determine which forms are needed based on how the properties are held, the amount of income, and other factors. It covers Form 8938 (FATCA), FBAR requirements, Form 5471 if properties are held through a foreign corporation, and Form 8825 for the rental income itself. The AI does cite specific IRS regulations, tax code sections, and even references relevant tax treaty provisions. For Mexico-related questions, it addresses the US-Mexico tax treaty specifically including Article 22 on non-profits. It provides references to exact IRS publications, revenue rulings, and tax court cases that establish precedent. When I used it for my foreign accounts, it cited specific threshold requirements from the relevant IRS instructions and gave me links to the official guidance.

How exactly does this service work? I've been trying to get someone at the IRS about an ITIN issue for my foreign spouse and spent literally 4+ hours on hold last week before giving up.

Yeah right. No way this actually works. If it did, everyone would use it and the IRS would shut it down immediately. They obviously don't want people finding a "cheat code" to skip their deliberately understaffed phone lines. I call BS on this working as advertised. Probably just takes your money and puts you on hold like everyone else.

The service works by using an automated system that continually calls the IRS using optimized dialing patterns based on historical wait time data. Once it gets through the queue and has an actual IRS representative on the line, it calls you and connects you directly to that person. It basically does the waiting for you. It's particularly helpful for ITIN issues like yours because those often require speaking to a specific department. I had a friend use it specifically for an ITIN application for his foreign spouse and he got through within about 30 minutes, when he had previously spent multiple days trying on his own without success. The service is completely legitimate and doesn't violate any rules. It's just an automated dialing system that waits on hold so you don't have to. The IRS doesn't care how you get through their queue, they're just understaffed. It's the same as if you paid a friend to wait on hold for you and then call you when they got through. It works precisely because most people don't know about it or use it yet.

Thank you for bringing this up! I hadn't even considered the PFIC angle. Do you know if educational non-profits typically generate enough investment income to trigger PFIC status? This organization mainly receives donations and some government grants. Also, did you determine the partnership classification yourself or did you need professional help? I'm wondering if Mexican non-profits might be viewed differently than Spanish ones.

Educational non-profits typically don't generate enough investment income to trigger PFIC status unless they have a large endowment that's actively invested. If they're primarily operating on donations and government grants for educational activities, it's unlikely to be classified as a PFIC. The PFIC test generally requires that 75% or more of the entity's income is passive (investment) income, or 50% of assets are held for the production of passive income. We definitely needed professional help to determine the correct classification. The key was looking at the organizational documents and how the entity operates rather than what it's called locally. We provided our tax professional with the Spanish equivalent of articles of incorporation and bylaws, which showed it operated more like a partnership with pass-through characteristics rather than a corporation. Mexican entity classification might differ, so I'd recommend either consulting with a tax professional familiar with Mexico-US tax matters or at minimum reviewing the actual organizational documents with that perspective in mind.

I used Greenback Expat Tax Services last year for a somewhat similar situation with interests in a Japanese non-profit. They weren't cheap (around $600 for my returns) but they knew exactly which forms were needed. For the penalties - they can be HARSH. Form 5471 penalties start at $10,000 per form per year if required but not filed. FBAR penalties are even worse. Don't mess around with this stuff!

Everything was handled remotely - I uploaded documents to their secure portal and had two video calls (initial consultation and then a review of the prepared returns). They were in a completely different time zone but made it work. They definitely provided advice for future years, which was actually the most valuable part. They suggested some changes to how I documented my involvement with the Japanese entity and recommended keeping certain records that would make future filings simpler. They also explained how getting married would affect my reporting requirements, which might be relevant to the original poster too. For what it's worth, they said most regular CPAs miss crucial details on these foreign filings because they rarely deal with them.